Day Hagan Tech Talk: Asked and Answered
A downloadable PDF copy of the Article: Day Hagan Tech Talk: Asked and Answered (pdf)
Summary
Last week, I stated that I’d like new highs to see what selling arises. I also said we would soon know if any topside breakouts were false and full of hot air. We immediately got an answer to both scenarios.
The Answer
SPX’s new closing high on 2/19/25 wasn’t confirmed by any Large Cap Advance-Decline Line (a third negative A/D Line non-confirmation—see Clarification below) or momentum (MACD). With the inability of New Highs to expand, selling immediately showed up the next day (2/20/25) and has persisted through at least yesterday (2/25/25). The selling has been relatively indiscriminate and includes Mag 7-type, Large, Mid- and Small Cap, DJIA, and DJ TRAN components, momentum, and technology. Refer to Figures 1 and 2.
Figure 1: S&P 500 (SPX/5955.25) and Dow Jones Industrial Average (DJIA/43621.16). | Please refer to the verbiage inside the charts. Arrows and green lines depict support and red lines depict resistance. Please refer to the Bottom Line below.
Figure 2: Small Cap proxy with 200-day MA (blue line). | If this is going to bounce, it has approached the area where it needs to occur now!
Bottom Line: SPX’s primary (non-trading) uptrend is still in place—Figure 1. However, from a tactical, short-term perspective, the dull, boring, choppy multi-month trend continues. And I think it will continue. Within that context, a change in character is developing. Long-suffering sectors such as health care, staples, utility, and real estate are catching a bid and exhibiting either stable or improving relative strength trends. As we noted last week, “Our sector allocations have been modestly shifting toward more cyclical/defensive sectors.” Fortunately, we are also seeing a shift in sentiment—less bullishness/more bearishness. From a contrarian perspective, this is a positive shift. When combined with a mini-oversold short-term condition, some top-side attempts should occur. If not, it will imply a lot more overhanging selling pressure.
Clarification: In last week’s report, I mentioned that the NYSE All Issues Advance-Decline Line closed at a new high. At the same time, the NYSE Common Stock Only and S&P 500 A/D Line did not. Both have much work to do to confirm SPX’s new high. When I dug deeper and pressed the charting service I use, the NYSE All Issues A/D Line didn’t close at a new high, and they updated the chart to reflect this. Thus, another negative A/D Line non-confirmation occurred last week (the third since late 2024) when the SPX closed at a new high, and the A/D Lines mentioned above failed to follow suit. In other words, the conditional warning remains. I point this out again because while not every negative A/D Line non-confirmation leads to a severe decline—some conditions get resolved, usually fairly quickly—many significant market setbacks are preceded by just such a conditional warning. This is even more reason to have an investment option with built-in guardrails to complement your hard work. Our Smart Sector strategy does this. Please reach out for details.
What’s Going on Today?
“It’s hard to predict the future. It’s not that hard to predict the present. In other words, it’s not that hard to understand what’s going on today.” ~Howard Marks
In my mind, Figures 3 through 6 depict a few things that are going on today.
Figure 3: Year-to-Date Performance. | Humbling, especially after all the huffing and puffing.
The current pattern is like the 2024 top (red boxes).
Figure 4: U.S. Dollar to Japanese Yen with falling 200-day MA. | I do not mean to sound like a broken record, but if this is going to bounce and alleviate some angst, it needs to do so now. Otherwise…
Weakness in the U.S. Dollar has likely added to the trends below, which show U.S. underperformance. If interested, please reach out for a chart of the U.S. Dollar.
Figure 5: Emerging and Emerging ex-China vs. SPX (U.S. proxy) & rising 50-day MA. | I don’t yet know if these trends are long-term or a reversal to the mean trade. I think we will soon get our answer.
Figure 6: Hang Seng China and China proxy (weekly) with rising 40-week MA. | Bottom pattern continues. Now, we want to see more than “fast money” enter the fray.
Note: Our Smart Sector Strategy models will be updated on 3/3/25. If our models shift to bearish levels, we will raise cash. Please let me know if you want to discuss the new monthly allocations with a portfolio manager.
The Day Hagan Smart Sector Strategies incorporate built-in risk management parameters relating to sector allocation and equity versus cash allocation. Please let me know if you would like to schedule a call to discuss the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector International, and Smart Sector Fixed Income strategies. Disclosures and Fact Sheets can be found here: https://dhfunds.com/literature.
Day Hagan Asset Management appreciates being part of your business, either through our research efforts or investment strategies. Please let us know how we can further support you.
Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 02.25.2025. Chart source: Stockcharts.com unless otherwise noted.
Disclosure
The data and analysis contained herein are provided “as is” and without warranty of any kind, either express or implied. Day Hagan Asset Management (DHAM), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DHAM accounts that DHAM, or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.
Investment advisory services offered through Donald L. Hagan, LLC, a SEC registered investment advisory firm. Accounts held at Raymond James and Associates, Inc. (member NYSE, SIPC) and Charles Schwab & Co., Inc. (member FINRA, SIPC). Day Hagan Asset Management is a dba of Donald L. Hagan, LLC.